If you’ve recently borrowed money to buy a home, you know that interest rates remain near all-time historic lows (e.g., 5% for a 30-year mortgage!). Some people not involved in the agricultural sector may also assume that ag lending rates are at or near those same remarkably cheap levels. However, the facts show that this is not the case at the current time.
DTN Progressive Farmer recently published a snapshot of agricultural lending rates, provided to them by Farm Credit Services of Mid-America. To see the report of recent interest rates charged for both real estate and operating capital, click here.
As you will see, long-term (e.g., 10+ years) money borrowed for an agricultural real estate mortgage has recently been more than 30% more expensive than that for a conventional home mortgage. Why? The answer stems from our government’s support for and purchase of more than a trillion dollars in housing-related mortgage backed securities during 2009 and into 2010 (to read more about the Fed’s actions, click here). The financial support given to support the troubled housing market does not appear to be prevalent in the ag sector.
That said, ag sector lending rates – just like those for home mortgages – do remain near historic lows. However, that may change. In summation of a conversation I recently had with an ag lender, “rates only have one way to go, and that is up.” And as the Federal Reserve attempts to feather its way out of providing tremendous support for the U.S. housing market in the next year and beyond, it will be interesting to watch the spread differences between home rates and those for ag loans.
What’s your opinion – should the government continue to support the U.S. housing market? If so, is the ag sector being short-changed? Send me an e-mail at doug@loranda.com to let me know your thoughts.
